The market is highly overbought in the short term and will move sideways for a few days
On Monday, we had mentioned that Indian indices are currently highly overbought and although we see the indices moving higher further, it will be met with strong selling. The indices opened Wednesday with a gap up and reached to a new high at the beginning of the session. After moving in a range up to around 11.30am, it started moving lower. However, at around 1.30pm the indices witnessed an upward pull, which led S&P BSE Sensex to reach almost to the same high as it had at the beginning of the session while NSE’s CNX Nifty crossed the high level it hit in the morning session. Both the indices were unable to sustain at that level and gave up most of the intra-day gains but closed marginally higher.
Sensex opened at 27,907 while Nifty opened at 8,351. Sensex moved in the range of 27,858 and 28,010 while Nifty moved between 8,324 and 8,366. This is the fourth consecutive session of the indices to hit a new life time high.
Sensex closed at 27,916 (up 56 points or 0.20%), while Nifty closed at 8,338 (up 14 points or 0.17%). NSE recorded a volume of 112.78 crore shares. India VIX rose 0.13% to close at 13.7550.
Market was closed on Tuesday for Muharram. The market will remain closed on Thursday for Guru Nanak Jayanti.
Adjusted for seasonal factors, the headline HSBC India Services PMI Business Activity Index fell to 50 in October, from 51.6 in September. Despite rising for the sixth consecutive month, new work intakes in the Indian service sector increased at the weakest pace since May during October. Growth of employment in the Indian service sector also slowed in October. However the latest data indicated that service sector firms in India remained highly optimistic regarding prospects for activity growth in the coming year. Business sentiment was the strongest in the three months, with panellists commenting on anticipated improvements in demand and new marketing initiatives as key sources of optimism.
Finance Minister Arun Jaitley at World Economic Forum in New Delhi said that India is open to privatisation of certain loss-making public sector companies. He also said the government will soon unveil reforms for other natural resources sectors along the lines of coal block auctions. The government intends to open railways further to private investment, review tough land purchase rules and relax labour laws, Jaitley said, but insisted the government needed to build support for some of the measures.
The Finance Minister also expressed the hope that the long-pending and controversial Insurance Amendment Bill, that seeks to raise FDI in the sector from existing 26% to 49%, will get Parliament nod in the upcoming Winter Session.
Hexaware Technologies (9.89%) was the top gainer in ‘A’ group on the BSE. The stock also hit its 52-week high today. It posted a net profit of Rs80.21 crore for the September 2014 quarter while the same was at net profit of Rs86.08 crore for the September 2013 quarter. Revenue is Rs344.57 crore for September 2014 quarter while the same was at Rs267.17 crore for September 2013 quarter.
Ipca Lab (10.55%) was the top loser in ‘A’ group on the BSE. The stock hit its 52-week low today. Credit Suisse downgraded the stock to 'Underperform' from 'Neutral' and lowered its target price.
Three of the four bank stocks in Sensex 30-pack were among the top five gainers. Axis Bank (2.93%), SBI (2.24%) and ICICI Bank (1.84%) were among the top five gainers. Axis Bank and ICICI Bank hit their 52-week high today. HDFC Bank (0.25%) was also among the gainers in the pack, it also hit its 52-week high today.
Weak data from China pulled metal stocks lower in the Sensex 30 stock. Hindalco (4.10%), Sesa Sterlite (3.79%) and Tata Steel (2.29%) were among the top five losers.
US indices had a mixed closing on Tuesday.
US trade deficit jumped in September to the highest level since the late spring. The surprising spike in the trade deficit is likely to reduce third-quarter growth when the US government revises the report later this month.
St. Louis Fed President James Bullard yesterday said that the US economy is on track to grow at a 3% annual rate over the next 14 months, which should allow the Federal Reserve to move ahead with plans to hike short-term interest rates.
Except for Nikkei 225 (0.44%) and Straits Times (0.19%) all the other Asian indices closed in the red. Hang Seng (0.63%) was the top loser.
The HSBC China services purchasing managers index edged down to 52.9 in October from 53.5 in September, but most major components of the index remain solid, HSBC Holdings PLC said on Wednesday. A reading above 50 indicates month-on-month expansion while a level below that points to contraction.
European indices were trading in the green. US Futures too were trading higher.
The European Commission on Tuesday, 4 November 2014 cut its growth forecasts for the Eurozone and the European Union, citing the tensions in Ukraine and the Middle East along with a lack of investment. The commission said it now expects gross domestic product in the 18-country Eurozone to grow 0.8% in 2014, down from 1.2% growth it forecast this spring. In 2015, the Eurozone economy will likely grow 1.1%, also less than the 1.7% growth seen in the spring. In 2016, growth in the currency union will rise to 1.7%, the commission said.
The finance minister wants to sell sick PSUs to private companies. The question is who will buy a loss making company that even the government wants to get rid of?
Finance Minister Arun Jaitley on Wednesday said that the government could consider selling off some of the public sector units (PSUs) that were making losses. Jaitley feels that these sick units would be better off in private hands. His statement came at the World Economic Forum conference held in Delhi.
He said that the economy was in a pit and the recovery was the first priority, which is what the government has been doing. “India had fallen off the radar, now people have started looking at us,” he said.
When asked about the strategy to mobilise resources from foreign and domestic investors, the FM said that disinvestment of state-run units will continue, but the feeling is that there are some PSUs, which are lossmaking and are on the verge of closing, could do well in private hands. At present, these loss-making PSUs are getting support from the government but taxpayers cannot continue to support these PSUs, he added.
The big question regarding privatising loss-making PSUs is that why would a private company buy a sick unit when it would have to deal with labyrinthine regulatory and tax issues, in addition to the efforts needed to revive these loss-making companies.
Jaitley’s statement is also contradictory to the government’s initiative to use surplus cash of Maharatnas and Navratnas lying idle in banks to revive ailing PSUs. In September, the union government had formed a committee to study the proposal. The Committee headed by NTPC chairman Arup Roy was expected to submit its report in two months.
According to Heavy Industries and Public Enterprises Minister Anant Geete, there are 70 sick PSUs and 43 out of this can be revived by infusing surplus cash from profit making PSUs. He had said, “All the Maharatnas and Navratnas combined have a (cash) surplus of around Rs2 lakh crore which is lying idle in banks. We have given them a proposal to form a joint venture company which has equal equity share of all these cash rich companies.”
As of 31 March 2013, there were 277 central public sector enterprises (CPSEs) having aggregate investment of Rs8.51 lakh crore and turnover of Rs19.46 lakh crore. The total turnover of CPSEs has grown by about 6% and net profit has recorded a growth rate of about 17% from 2011-12 to 2012-13. These CPSEs contributed Rs1.63 lakh crore to central exchequer by way of excise duty, customs duty, corporate tax and dividend during FY2012-13.The foreign exchange earnings through export of goods and services has shown a growth of 8% in the same period. About 14 lakh people are employed in CPSEs.
Short-lived climate pollutants-SLCPs have had significant impact on crop yields in India in recent decades. UP, the main wheat-producing state has been hit especially hard while rice-producing states in the heavily polluted northern Indo Gangetic Plains have also been significantly negatively affected
Tropospheric ozone and black carbon (BC), the two potent short-lived climate pollutants (SLCPs), have severely affected wheat and rice production in India over the past three decades. According to a study, averaged over India, yields in 2010 were up to 36% lower for wheat than they otherwise would have been, absent climate and pollutant emissions trends, with some densely populated states experiencing 50% relative yield losses.
The study by Jennifer Burneya and V Ramanathanb is published in PNAS journal
It says, between 1980 and 2010, emissions of black carbon and ozone precursors have risen dramatically in India that has directly affected agriculture production. The main sources of BC in India are domestic biofuels—wood, dung, and crop residues for cooking—and fossil fuels.
It says, "Yields for wheat and rice in India have recently begun to level off or even drop in some states. This trend, particularly for wheat, counters decades of increasing yields driven by technological innovation. At the same time, growing season temperature trends have been positive for major wheat and rice- producing Indian states. Studies have shown that these climate trends have had a negative impact on Indian agriculture, reducing relative yields by several percent. However, although temperature and precipitation changes have and will continue to impact future yields, these two variables alone do not tell the entire story of India’s changing crop yields."
There is substantial variation in relative impacts of climate and SLCPs across states. Some of the most dramatic impacts for both wheat and rice have occurred in Uttar Pradesh and Uttaranchal (UP). UP, India’s most populous state is the largest producer of both wheat and rice in the country, providing over one-third of India’s wheat and 14% of India’s rice. In particular, wheat yields for UP are about 50% lower than they otherwise would have been absent climate and pollution trends, and over two-thirds of that relative yield change (RYC) is attributable to SLCP emissions trends.
Rajasthan, although producing a lower percentage of India’s wheat, shows the greatest overall wheat RYC of more than 50%. The relatively large climate affects wheat in both UP and Rajasthan, which are driven by temperature, as the two states have had the largest increases in growing season temperature since 1980, 0.87° for Rajasthan and 0.52° for UP.
Four of the main wheat-producing states—UP, Rajasthan, Madhya Pradesh and Chhattisgarh, and Bihar and Jharkhand—have large negative SLCP impacts, whereas Punjab and Haryana show little to no impact of either SLCPs or climate not statistically significant at 90%.
Moreover, the uncertainties in Punjab and Haryana are greater than for other states, and across alternative models specifications. Two factors likely explain these differences. First, Punjab and Haryana are the most technologically advanced wheat-producing states in India, with the highest yields and the greatest yield gains over the period; they also feature some of the lowest estimated crop yield gaps in India and the world, meaning they have been closest to achieving biological potential despite climate and emissions changes. However, in addition, the intricacies of ozone production likely explain the SLCP impact differences.
For rice, the overall climate and pollution impacts are lower, and the state-by-state variation is less than for wheat. Most notably, the south-eastern states of Tamil Nadu and Andhra Pradesh show higher relative climate impacts; these are two of the least-polluted states in the study region; they have also featured significant growing season temperature increases.
The states of the heavily polluted northern and eastern Indo Gangetic Plains (UP, Bihar and Jharkhand, West Bengal) all exhibit SLCP RYC of about 5% or more. Haryana and Punjab, the two states with the smallest SLCP impacts in wheat, do not diverge from the other states in rice impacts. The difference in SLCP impacts between the two crops for Punjab and Haryana is likely dominated by differences in rates of ozone formation in the two states between the two seasons.
"Our results nevertheless indicate that SLCPs have had significant impact on crop yields in India in recent decades. The main wheat-producing state (UP) has been hit especially hard; rice-producing states in the heavily polluted northern Indo-Gangetic Plains have also been significantly negatively affected. For context, the yield loss for wheat attributable to SLCPs alone in 2010 (-18.9%) corresponds to over 24 million tons of wheat: around four times India’s wheat imports before the 2007–2008 food price crisis and a value of about $5 billion. Mitigation of SLCP emissions in India could thus have important food security impacts both domestically and internationally," the study concludes.